A raft of tax cuts and rises in allowances were promised in the Tories' election manifesto last week, all funded by £8 billion of public spending cuts.

Savings

The party plans to scrap the 22 per cent and 10 per cent rates of income tax on the dividends and savings of about 20 million savers from April 2003. However, accountants say it could force far more people to complete tax returns and discourage people from saving into pensions, where returns would remain taxed as they are now.

Higher-rate taxpayers would still have to pay tax at the highest rate on their savings and dividends, encouraging the transfer of assets to spouses who pay little or no tax.

These proposals would cost about £3bn.

Pensions

The Tories would stop people having to spend most of their pension funds on annuities when they retire. An annuity would still have to be bought, but it would have to be big enough only to keep their income above the level qualifying for state support. The remaining money could be invested according to official guidelines. Any capital remaining on the death of the pensioner or spouse would pass into their estate, taxed at 35 per cent.

The party plans to increase state pensions by £3 a week for single pensioners under 75 and by £4.80 for couples. Those over 75 will receive £4 and £6.80 respectively.

Young people would be offered the chance to 'contract out' of the basic state pension, investing the portion of their National Insur ance contributions that fund it in a private pension scheme. The basic pensi0n would continue for those wanting it, and any holes in funding would be plugged through the issue of gilts.

Tax

The Tories 'aspire' to raise the level of income at which people pay the upper rate of income tax in the second half of the next Parliament.

The cost - £500 million - would benefit 10 per cent of the population. A further 1 million people aged 65 or more would not have to pay income tax through the lifting of age-related allowances by £2,000 a year. Those whose incomes exceed this enhanced allowance will see their weekly tax bill cut by as much as £8.50 a week.

The Tories plan to allow married couples where one partner earns little or nothing, and where there is at least one child under 11, to transfer any unused personal tax allowance to their spouse to reduce the family tax bill. The transfer could also apply to people staying at home to look after elderly relatives who receive invalid care allowance. This could cut family tax bills by up to £1,000 a year. The tax benefit would be calculated at the basic rate of income tax - higher-rate tax payers would not be eligible for relief at 40 per cent.

Children's tax credit

Parents who pay the basic or lower income tax rates and have offspring under 16 would see their children's tax credit increase from £520 a year to £720.

Long-term care

People who save between £25,000 and £30,000 for long-term care would not have their homes and investments 'seized' by the state to pay for care fees, even if the bills were higher than those amounts. The Conservatives suggest that people could either buy insurance policies to pay the fees or set up their own long-term care funds, using either their savings, a lump sum payment from a pension or with contributions from their families.

If it turned out that the long-term care was never needed, the fund could be passed on to children and grandchildren.